Are Stock Transaction Fees Tax-Deductible?
One of the fundamental ways you can make money in the stock market is by buying low and selling high. If you sell your stock for more than you paid for it, you have a profit. The Internal Revenue Service considers this profit to be a taxable capital gain. You can reduce the amount of your taxes by deducting certain expenses associated with investing, but you can't deduct transactions fees.
The IRS does not allow you to write off transactions fees, such as brokerage fees and commissions, when you buy or sell stocks. Instead, you can add the amount of those fees to the purchase price of your stock. The purchase price plus the cost to acquire your stock equals your cost basis. For example, if you bought 100 shares of XYZ stock at $10 per share, your purchase price would be $1,000. Add in commissions and transaction fees of $10 to get your cost basis of $1,010 or $10.10 per share. You can also reduce the amount you received from selling your stock by the amount of your transaction fees. Even though you can't deduct your transaction fees, you can reduce your taxable gain, or increase your taxable loss, by properly figuring your cost basis.
Deductible Investment Expenses
While you can't deduct your stock transaction fees, you can deduct certain other expenses associated with producing investment income. For example, you can write off the expense of paying for a safe deposit box if you use it to keep stock certificates or other investment-related documents. You can deduct legal fees and fees for professional advice relating to your investments. The cost of financial publications and investment newsletters is tax-deductible. You can also write off fees to financial institutions or trustees for collecting your investment income.
Other Non-Deductible Expenses
You can write off travel expenses to look after your investments or to seek advice from your investment counselor, but that perk does not extend to attending investment seminars or conferences. Travel expenses for attending a company's annual stockholders' meeting are also not tax-deductible, even if you own stock in the company.
You'll have to itemize your deductions if you want to write off your investment-related expenses. Include these expenses with your other miscellaneous itemized deductions on Schedule A. The amount of your deduction for all of your miscellaneous expenses is limited to the amount that exceeds 2 percent of your adjusted gross income. Don't include transaction fees with your other miscellaneous deductions. Include them with your cost basis when you report your stock sales.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.